RAY SUAREZ: People often look to the government monthly jobs report for a sense of how things are going in the economy, and today’s report sent some mixed signals. There were fewer new jobs than expected, but wages over the last year grew by 3.8 percent, the fastest pace since 2001.

Other indicators in the last few weeks suggest the economy has been steadily improving: Gross domestic product, or GDP, grew by just under 5 percent in the first quarter of the year. Consumer spending and business investment were also up in the first three months of year.

But there are some caution signs, too. Interest rates are rising. Some segments of the housing market are getting weaker, along with consumer confidence, and oil and gas prices remain high.

For more on what this all means, I’m joined by William Spriggs, chairman of the Department of Economics at Howard University, and Nariman Behravesh, chief economist for Global Insight, an economic forecasting firm.

And, Nariman Behravesh, let me start with you. With slow job creation but steady unemployment, low consumer confidence but strong consumer spending, how do you take some sort of overall trend out of such a mixed bag of numbers?

NARIMAN BEHRAVESH, Economist, Global Insight: As you were saying, the economy is giving off some very mixed signals, but when you put it all together, there’s still a fair amount of good momentum in the economy.

I tend to discount today’s jobs growth numbers; there were some fluky parts to it. And so I think probably the number was closer to 200,000, when you sort of adjust for those statistical flukes. So, all in all, we’re looking at an economy that’s doing fairly well.

The worrisome part of today’s report really was on the inflation front, as you were saying, which is that wage inflation looks like it’s picking up. That sort of confirms other data from the CPI and the GNP numbers that suggest, in fact, that inflation may be sort of moving upward a little bit. And that’s a source of concern, not just us economists, but also to the Federal Reserve, more importantly for the Federal Reserve.

RAY SUAREZ: Professor Spriggs, what do you think?

WILLIAM SPRIGGS, Department of Economics, Howard University: Well, actually, I think that it shows that the market, the labor market, is still fairly weak. And hopefully, what the Fed will do is look at these numbers — while it’s true that the average wage numbers reported today were up, they’re probably only up as much as inflation. Inflation numbers have been running pretty close to this.

If you look over this recovery over the last five years, productivity has been up tremendously. And, typically, we expect to see wages increase with productivity, and we’ve seen wages be flat over this four- or five-year period. So I think it shows some weakness.

Today, we saw a mix in jobs change. So, fortunately, the economy was generating some jobs that are higher-wage jobs. There were losses reported in retail sales, but gains in manufacturing and gains in professional services. Those are higher-wage sectors.

If you look at the employment cost index, which controls for how things shift, then you see that wages were weak in the latest report. So I don’t think we’re seeing inflationary pressures from what we’ve seen from wages.

This is five years into a recovery. And at this point, we should actually see more jobs, and we should have seen wages actually recover by now from where they were in 2001. So I think we are in a very tenuous position and, hopefully, the Fed will think about the downside risk, namely that all of this consumption has been taking place through debt and that consumers are carrying a very heavy amount of debt.

Concerns about inflation

RAY SUAREZ: Well, you just heard your colleague say that perhaps this jobs number was kind of an outlier or a statistical fluke, but he shared your concern about inflation. Now, recently the new Fed chairman, Dr. Bernanke, said that inflation is not necessarily under control, that interest rates may have to rise again. Is that a risk?

WILLIAM SPRIGGS: I don't think inflation is a risk at this point. I think the bigger risk is the downside risk of a weak labor market and the risk of what happens if we don't actually see wages and median incomes start to rise, because people have to find a way out of the debt that they're in.

The preferable way is that we see their incomes get back to trend. In the 1990s, we finally saw wages responding to the tight labor markets, and now we need to get back to that trend.

RAY SUAREZ: Well, respond to the professor, Nariman. You heard him say that wage growth should have been stronger by this point in the recovery. If GDP growth has been so strong, and if every worker who's been at it for an hour creates more value per hour that they work, why hasn't wage growth been stronger?

NARIMAN BEHRAVESH: Well, that's a very good point, and I basically agree that, up until now, wage growth has lagged the recovery, but that's in the process of changing. The labor markets are beginning to tighten, and we are beginning to see some of that pressure.

Up until now, most of the benefits of the economy growing so rapidly went into corporate profits. Corporate profits are at record levels, so there's no debate that, up until recently, wages have lagged. I guess my point is, already, we're starting to see that.

The professor made reference to the employment cost index, but there's another piece of data that came out this week on productivity. Now, productivity was strong, but compensation -- which is wages plus benefits -- went up 5.7 percent. That's a little scary.

So my sense right now is that wages are beginning to kick in. They're beginning to catch up, and that something that we have to keep an eye on.

The improving job market

RAY SUAREZ: And to keep in that vein, how do those trends that you've just identified visit themselves on an actual household, if you're looking for a job, if you already have a job?

NARIMAN BEHRAVESH: Well, the good news is that jobs are available. I mean, this number, as I said, was a little weak. Prior to that, jobs growth had been very good. And I suspect, in the next few months, jobs growth will continue to be very good.

So you got good jobs growth, wages starting to pick up. And, all of a sudden, I think household incomes are starting to look better, in terms of their growth, than they have in a while. So from that perspective, I think, looking forward, that side of the economy is finally kicking in.

RAY SUAREZ: Well, Professor, why do people tell public opinion researches they're so pessimistic about the economy, if there's so much upside in these numbers?

WILLIAM SPRIGGS: Well, the numbers are good if you look at very recent history, the last two years, but households are experiencing what's gone on for the last five years. If you look at the share of people who are holding a job, we're still well below where we were at the peak back in 2001.

And so, when folks look at their household, they look at their younger workers, their kids, and they see that they aren't getting employed at the same rate as maybe their older siblings did five years ago. You get some of the concern.

And the fact that last year, and we as a nation, actually, instead of saving, actually spent more than what we earned, so we had a negative savings rate, so all of these things make people nervous.

The slowing down of the housing market in a number of cities makes them nervous, because many people either take an interest-only loans, betting that the housing market would remain hot, and so they look at their debt structure, their pension fund. Their thrift savings plans took big hits in 2001. Those funds are only just getting back to where they were in 2001.

So, when they look at where they are positioned, looking forward, in terms of their savings going into retirement, looking at their kids, with their job market difficulty, looking at their wages being flat, people are very concerned. This is not that rosy.

It's good for the last two years, but, over five years, an expansion which just has not generated what has been typical of previous expansions, people don't get that enthused.

Economic worries persist

RAY SUAREZ: Well, Nariman Behravesh, how does that pessimism that Professor Spriggs just described square with the strong consumer spending? How do people tell researchers they're pessimistic and then go out and spend, spend, spend?

NARIMAN BEHRAVESH: Well, it's what I call the headline effect. And I don't think it's so much what the professor is discussing, but that the headlines as showing high gasoline prices. We go to the pumps once a week or however often we go, and the prices climb.

I think people are a little worried, but the reality is their take-home pay is pretty good; they've got a job; their neighbors have a job. So, in terms of what's actually happening, it's good, but the headlines are a little scary, so you get this dichotomy between the consumer confidence numbers and what people are actually spending.

As you said, they seem to be spending just fine, but they are a little bit worried

Gas prices

RAY SUAREZ: And a quick read on how the gas prices might filter through economic growth and affect the market?

NARIMAN BEHRAVESH: Well, I think gas prices -- and the higher they go, of course, the more the pain -- but it will have an effect. And it is already having an effect on some discretionary spending, in eating at restaurants, taking trips, and so forth, so it's not that it has no impact.

But, so far, it has had a fairly small impact, because gasoline spending as a percent of total household budgets is still only about 3-3.5 percent, so it's still a fairly small portion of the household's budget. So even if it's risen, it's not that bad.

Now, having said that, let me qualify and say that, for lower-income people, obviously, gasoline spending is a bigger share of their budgets, so you have to factor that in.

RAY SUAREZ: And finally, Professor, how do you see gas prices affecting the job market and the economy in general?

WILLIAM SPRIGGS: Well, I think they're going to put pressures on companies. Transportation costs, though they are small compared to what companies spend everything on, they still are important to the companies that are trying to get their margin down, try to be as competitive as possible.

And so I think this will continue to create pressure on wages and create pressure on whether we see continued job creation, as companies try to respond to absorbing higher energy costs.

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